After Bitcoin, NFT is the new gold worth investing in. The recent activities regarding NFT funds held by big venture capitalists show that the worth of NFTs is here to stay. Leading fund managers like Andreessen Horowitz and Paradigm are investing millions of dollars in NFTs as a strategy to make a grand return in the crypto market.
NFTs or non-fungible tokens have become the latest digital craze after their sudden burst into popularity on mainstream social media platforms. Celebrities, influencers, artists, singers, and almost every creator is now releasing their own NFT collections.
Since last year, NFTs rose to become a million-dollar industry bringing in many investors and traders to profit in the crypto world. In fact, many people believe NFTs have become a pathway for traders to become high-profile investors in the crypto market. This belief comes from the recent events where fund managers and venture capitalists are investing millions of dollars in NFT projects.
The biggest examples are the two largest cryptocurrency venture capitalists, Andreessen Horowitz and Paradigm, who invested in NFTs. According to the many fund managers, NFTs have become an investment strategy for traders to make a return in the crypto world.
“When we think about buying NFTs, it’s in line with our investment strategy, which is thinking about investing in things that have the potential to return many, many multiples of the fund,” says Ophelia Brown, managing partner of the venture fund Blossom Capital.
So, if a venture capitalist invests in NFT projects, the NFTs might pay them back double the amount invested. Compared to cryptocurrencies, NFTs are proven more volatile and profiting. This comes from the recent Terra’s UST stablecoin which was considered to be a safe investment for traders but fell to extreme lows after the crypto crash.
Investors are now turning to NFTs as digital assets to maintain their crypto portfolios. However, a risk remains as many NFT collections failed to record a good trading volume. Still, the investors attach high hopes to NFTs.
Venture capitalists raise NFT funds
The trend for raising NFT funds goes back to the summer of 2020 when the managing partner of Sfermion, Andrew Steinwold, raised money for an NFT fund. Steinwold raised around $5.3M that later filled his bag with double fortunes. The firm is now set on raising its first gaming-focused fund of $100M as part of its investment plan.
After that, many Venture capitalists became involved in raising NFT funds. Recently, Andreessen Horowitz, the largest VC, led the funding round for Yuga Labs, the creator behind Bored Ape Yacht Club. The startup managed to raise $450M in its seeding round.
Similarly, Punk6529, a well-known personality with over 350,000 Twitter followers, raised around $75M for a fund that purchases blue-chip NFTs. An OpenSea early investor, 1confirmation managed to raise an NFT fund of $50M which will eventually double as more investors come in.
Many traditional venture capitalists are also taking this opportunity to profit from the rising million-dollar industry by buying out top NFT collections such as CryptoPunks, BAYC, and World of Women.
How can NFT funds profit Venture capitalists?
Although many venture capitalists refuse to provide details about their investments and fundraising activities, it is quite apparent that every manager is hoping for a double profit through NFT funds.
Based on the data collected by 1confirmation, Ethereum NFTs recorded a market value of $31.4B last year, with most sales in PFP NFTs and cultural digital collectibles. Furthermore, BYAC and CryptoPunks have managed to become the top two most valuable NFT collections with a 1700% increase since 2018.
Many fund managers believe NFT funds can pay double the amount collected. As NFTs become popular among common people, the marketplaces are expected to see an increase in users and traffic in the coming years. These NFT funds are for small startups and companies that have proven themselves to be worthy of investment.
Since NFTs don’t have a standard benchmark set, nothing can be said about how profitable or risky they can be.
Seeing the Venture capitalists’ interest in NFT funds, Aleh Tsyvinski, an economics professor at Yale University who assisted in the construction of the NFT indices says “NFTs, as they are now, are really not an investable asset class.”
To conclude, NFT funds are like buying the equivalent of different properties in an area to give an idea to investors about the exposure to the overall housing market. It all depends on the fund manager’s confidence and analysis of an NFT to know how profitable it can be for them.